Legislative Bulletin
April 7, 2000

Property Tax Relief Hangs In Balance

It’s crunch time at the Legislature. The clock is ticking toward adjournment within the next week, and almost all the decisions have been made with respect to the 700-plus bills that have been given consideration during this second legislative session.

If crafting the entire spending plan has proved to be easier said than done, one element of the final spending decision is a no-brainer. A chunk of that extra money should translate into some form of tax relief.

And this Legislature appears to have a sound appetite for tax relief proposals.

Income and sales tax relief, that is. Property tax relief appears to a much lower priority this year.

By type of tax relief, here are the proposals and their financial impact that found favor with this Legislature and await packaging into the supplemental budget. That budget package will likely be assembled over the next few days.

Sales Tax Relief

Repeal of the sales tax on snack foods, costing approximately $16 million per year.

Income Tax Relief

Pension exemption, costing approximately $40 million per year. There are several competing proposals regarding the pension exemption, but the measure embraced by the Legislature would exempt the first $10,000 of public or private pension income for persons filing single returns and $20,000 for married persons filing jointly. The measure would also expand the income tax deduction to include all annuity income and, for taxpayers 65 years of age or older, all income from interest, dividends and capital gains would also be deducted.

Income tax bracket creep and personal exemption, costing approximately $13 million in FY 2002. This measure would annually adjust the income tax brackets according to the cost of living index and permanently conform the personal exemption, currently $2,850, to the federal income tax personal exemption, which is also adjusted annually by a cost of living index.

"Single sales apportionment" reduction of the corporate income tax, costing approximately $1.5 million per year. This measure would change the formula used to calculate the corporate income tax liability of pulp-and-paper and high-technology taxpayers that conduct business in more than one state, with the effect of reducing those industries’ exposure to the tax.

Tax credit for certain uses of wood waste, costing approximately $1 million per year. This tax credit would be provided to companies that produce wood waste biomass, such as the sawdust from sawmills, and transport that biomass to certain facilities where it is used for energy production or transformed into another product.

Tax credit for pharmacies that waive certain prescription drug co-payments, costing approximately $1 million per year.

Telecommunications Tax Relief

Reduction of the state-imposed property tax mill rate on telecommunications property, costing approximately $8 million per year when fully phased in. This measure would phase-in a reduction of the currently-imposed tax rate of 27 mills that the state applies to two-way, interactive telecommunications property. That tax currently generates approximately $30 million per year to the state treasury. The proposal would bring down the tax rate to 20 mills by 2003.

Property Tax Relief

Finally, seemingly on the low-end of the Legislature’s tax relief list, is the Revenue Sharing II proposal, which would cost the state treasury approximately $4 million per year.

Revenue Sharing II would provide property tax relief by increasing the revenue sharing fund by a modest 4% (from 5.1% to 5.3% of sales and income tax revenue) and targeting the additional revenues toward municipalities with higher than average property tax burdens. Revenue Sharing II received unanimous support from the Taxation Committee and is considered an integral component of the tax policy measures that should be put in place to address the phenomenon of urban flight to the suburbs and rural places, otherwise known as "sprawl".

Although the Legislature does not directly assess the property tax, the property tax burden in your community is directly impacted by legislative decisions regarding:

• the funding of education,

• the creation of property tax exemptions and tax reductions to certain property interests,

• the funding or choosing not to fund state mandates, and

• the provision of timely cost-share payments for shared environmental projects.

The Revenue Sharing II proposal is modest, targeted and extremely thoughtful piece of very sound tax policy that recognizes the state’s indirect involvement in setting the property tax mill rate, which can be a punishing burden in certain communities located all over the state.

Unfortunately, the most thoughtful tax policy doesn’t always rise to the top. If you believe some property tax relief belongs in the $340 million supplemental budget, please call your legislators today. (GH)

Membership Fees on Tax Acquired Property

On Monday, April 3rd, the State and Local Government Committee heard four hours of public testimony on an after-deadline bill, LD 2655, An Act to Amend and Clarify the Powers and Duties of the Lake Arrowhead Community, Incorporated.

Sponsored by Senator Jim Libby (York Cty.) and Representative Mike McAlevey (Waterboro), this bill would make it clear that the towns of Limerick and Waterboro are not liable for the Lake Arrowhead Community association membership fees. The corporation is currently assessing membership fees against properties within the Lake Arrowhead development that the two municipalities acquire for non-payment of property taxes.

The testimony provided by the proponents of LD 2655 focused on the intent of the Legislature which enacted the legislation that created the Lake Arrowhead Community in 1995. According to the bill’s sponsors, several municipal officials from the towns of Limerick and Waterboro, and a former legislator, Senator Willis Lord (Waterboro), the law incorporating the development association was enacted with the intention that the towns involved would not be assessed any membership fees. The proponents testified that they would not have supported the initiative in 1995 had the parties believed the association fees would be assessed against the inhabitants of the municipalities when the development’s lots are effectively abandoned by the owners and tax acquired.

Opponents of the bill, including the Lake Arrowhead Community president and legal counsel, argued that since the law did not explicitly state that the fees could not be assessed against municipalities, the Lake Arrowhead Community had every right to seek membership fees from the municipal source. The opponents, as part of their defense, cited a legal note written by MMA legal staff that a municipality could be assessed condominium fees in the circumstance of tax acquired condo units.

MMA provided testimony "neither for nor against" LD 2655. Although MMA’s Legislative Policy Committee did not have an opportunity to review the bill, MMA staff believed there is merit in the portions of the bill that proposed to clarify that the municipalities should not be held accountable for paying the association fees. When property is acquired through the tax lien process, the municipality holds the property until it can be disposed of through auction. The inhabitants of the municipality do not enjoy the benefits of association membership (tennis courts, assess to water, etc.); the town is holding title to the property merely in its function as a governmental unit. As an analogy, when the federal government takes property for nonpayment of taxes, you can be sure that any membership fees go unpaid. Similarly, Maine law, under 38 MRSA, section 1367-B, creates an immunity for municipalities with respect to environmental liabilities when the municipality has acquired the property through tax delinquency proceedings or through any similar statutorily-created procedure for collection of governmental taxes, assessments, expenses or charges, or involuntarily through abandonment or in circumstances in which the municipality involuntarily acquired ownership or control by virtue of its function as a governmental unit. It is only common sense that the inhabitants of the municipality, already burdened with the fact that the tax acquired property has come off the tax rolls, should not be further burdened with paying association membership fees for the use of tennis courts that are not open to the public.

The Committee voted to support LD 2655 (8 to 5). The Senate has also supported the measure 17-5. The bill is now being considered by the House. (KD)

Homeless Youth Study

The Committee on Health and Human Services gave an "ought to pass" report on LD 2187, Resolve, to Implement the Study and Report on the Problems of Homeless Youth. The bill has been engrossed by both the House and the Senate and is now on the Appropriations Table waiting funding for its $21,000 fiscal note. If the Appropriations Committee gives the bill a green light, LD 2187 will come before the House and Senate for final enactment.

The purpose of the bill is to study youth homelessness and to determine whether or not there exists a relationship between youth homelessness and the General Assistance program. The examination of the General Assistance program will focus on the decreased funding provided to the program in the past 8 years and the program’s effectiveness, administrative practices, cost of delivery and effectiveness with regard to homelessness. The study must also include: 1) a description of homeless youths, their needs and barriers to services; 2) a review of all statutes and rules regarding homeless youths; 3) a review of current funding programs; 4) the creation of standards for programs for providers of services; 5) the identification of potential funding sources to provide services; and 6) a determination of the agencies responsible for implementing a strategy dealing with runaway youth.

The ten member task force will include one Senator, two members of the House of Representatives, one member of the Interagency Task Force on Homelessness, one member of the public, the Commissioners of Corrections, Education, Human Services and Mental Health, Mental Retardation and Substance Abuse and a representative of the Maine State Housing Authority. Although the study requires the task force to address the General Assistance program, no municipal representative will be appointed to this Committee, which is remarkable given the task force focus on the General Assistance Program and given that the General Assistance Program is administered by local government in Maine.

MMA is currently working with the chairs of the Health and Human Services Committee to amend LD 2187 so that a municipal official could participate in the deliberations. It is possible that the bill could be amended if and when it returns from the Appropriations Table to the House and Senate for final enactment. (KD)

Property Taxpayers Are Subsidizing Sprawl

No matter how you feel about the issues being discussed in the context of "sprawl," such as service center impact, loss of open space, farming, forestry, incompatible land use, and comprehensive planning (the list goes on forever), you are likely to agree on two related concepts: People should be free to chose where they want to live, and they should be willing to assume the costs of their decision.

Growth comes with public costs. When a residential development is created, property taxpayers in the municipality must contribute funds to finance roads, sewer and water facilities, solid waste facilities, recreation, public safety services, and school expansion to accommodate the new development. With no impact fees, the costs of all this infrastructure must be factored into the local property tax and paid by existing taxpayers. When the development contributes impact fees, all of the costs do not have to be borne by the existing tax base, but are shared by the new residents as part of the purchase price of their homes.

An impact fee is a one-time charge that requires developers, and through them the new homeowners, to provide a proportionate share of the revenue needed for construction or expansion of capital facilities to serve new development. Impact fees are used to some degree in all 50 states. Maine law (30-A MRSA §4354) empowers municipalities to levy, receive and use development impact fees for infrastructure facilities including, but not limited to: wastewater collection and treatment facilities; municipal water facilities; solid waste facilities; fire protection facilities; roads and traffic control devices; and parks and other open space or recreational areas. While schools are not specifically included on this list, the statute does foresee other permissible infrastructure needs that could be financed by impact fees with the "not limited to" language. In a 1988 letter, James Lansing, writing as Assistant Attorney General, described the intent of the legislative committee that "…municipalities that could demonstrate the impact of growth on schools could impose impact fees in that area."

Maine’s law requires that impact fees meet these four tests:

1) The amount of the fees must be reasonably related to the development’s share of infrastructure costs attributable to the development;

3) A municipal ordinance must establish a reasonable fee schedule linked to the capital investment component of the comprehensive plan; and

4) The ordinance must establish a refund mechanism for unexpended fees.

The sprawl bill revised by the Natural Resources Committee, LD 2600, An Act to Implement the Land Use Recommendations of the Task Force on State Office Building Location, Other State Growth-related Capital Investments and Patterns of Development, proposes to add school facilities and public safety equipment to the list of specifically enumerated infrastructure facilities that can be included in impact fees. Any fees developed under these would still have to meet all four tests of the statute described in the previous paragraph.

Some say that imposition of school impact fees is unfair because not every house contributes a child to be educated. However, every new house does contribute the potential to impact the school system, just as every new house contributes the potential to impact the public safety system. No one would argue that, because not every house will have a fire, impact fees for public safety equipment are not justified. We want the fire department to be ready! It is the potential to use the school system, the roads, the fire equipment, recreation, sewer and water systems that demands that those systems be built. And if the school is not required, Maine’s law prohibits the imposition of impact fees for that purpose, or provides for refund of the fees if they are not expended for the stated purpose.

Affordability of housing is important, too. Development that takes place where infrastructure is adequate would not require impact fees. For example, a residential development built in a municipality’s growth area, already served by sewer, water and other existing infrastructure, would not demand new municipal investment. The same residential development built in a more distant area requiring sewer and water extensions, road upgrades, and school capacity, would demand a great deal more municipal investment, and consequently, impact fees.

IN THE HOPPER

Inland Fisheries and Wildlife

LD 2670 – An Act Regarding Lifetime Hunting and Fishing Licenses (EMERGENCY) (Reported by Rep. Dunlap for the Joint Standing Committee on Inland Fisheries and Wildlife)

This bill would make lifetime hunting and fishing licenses available in January of 2001 for residents from 6 to 15 years of age, establish a sliding scale fee for the existing senior lifetime licenses, and clarify that persons 70 years of age or older remain entitled to a complimentary lifetime hunting and fishing license. The infant (under six years of age) hunting or fishing license would cost $150. The infant combination license would cost $250. The "junior" (6 to 15 years of age) hunting or fishing license would cost $300, and the junior combination license would cost $500. In addition, this bill would set 2006 as the deadline to make adult resident lifetime licenses available. (Passed to be engrossed in House with House Amendment "A" – H-1064)

Taxation

This bill would implement the tax policy recommendations of a legislative task force focused on the issue of sprawling land use patterns of development. The bill would create a second-tier municipal revenue sharing program by increasing the percentage of state sales and income taxes that is distributed to local government from 5.1% to 5.3% and creating a threshold dollar figure within the total amount collected in any year. Below that threshold amount, the revenue sharing distribution formula would be the formula in current use (municipal factor = population x full value mill rate). For any revenues accruing to the Local Government Fund that exceed the threshold amount, the distribution formula would set the municipal factor at population x full value mill rate – 10 mills.

This bill would also provide for municipal reimbursement for land enrolled in the Farmland current use taxation program at the "90% reimbursement" level in the same manner as is provided for land enrolled in the Tree Growth program.

This bill would also reduce the acreage threshold to enroll land in the Farmland program from a 5-acre minimum to a 2-acre minimum and eliminate the stiffer withdrawal penalty that applies when farmland acreage is withdrawn from the current use taxation program within the first five years of enrollment. Under this bill, the withdrawal penalty would become the minimum constitutional penalty (the difference between the taxes actually paid under the Farmland program and the taxes that would have been paid had the land not been enrolled over the last 5 years, plus interest) regardless of how long the farmland property was enrolled. (Engrossed in the House)